The GOP ❤︎’s Carbon Tariffs

In case you've missed it, no fewer than three Republican senators are working on legislation that would create a carbon border adjustment mechanism (CBAM). Sen. Lindsey Graham (R-SC) is the latest, telling Bloomberg last week that he may introduce legislation as soon as this week that would impose carbon tariffs on imported products – such as steel, concrete and aluminum – that are produced overseas and made with higher carbon emissions than equivalent domestic goods or materials. In doing so, Graham joins Sens. Bill Cassidy (R-LA) and Kevin Cramer (R-ND) in drafting such legislation; on the Democratic side, Sens. Sheldon Whitehouse (D-RI) and Chris Coons (D-DE) have previously introduced their own CBAM bills. 

So what gives? After years of deriding Democrats for offering overly complicated cap-and-trade schemes and other command-and-control regulations to reduce carbon emissions, it's notable that Republicans are moving ahead with their own equally complex proposals that aim to tackle climate change. 

In this case, Republicans are looking to capitalize on the United States’ strong environmental regulatory system to boost the competitiveness of American manufacturers. It's also somewhat of a defensive posture, given that the European Union is moving ahead with its own CBAM scheme. Underlying the flurry of GOP bills is the fact that this is a conversation that's been going on among Republicans for several years; it came to light publicly during the bipartisan discussions Sen. Joe Manchin (D-WV) convened last year as an alternative to the Democratic-only reconciliation negotiations, which eventually led to the Inflation Reduction Act (IRA). 

Let's be clear: none of these forthcoming bills, from Republicans or the usual Democratic suspects, are going to become law. For starters, the complexity of the issue is a serious impediment. After all, how do you assess the carbon content of products imported from China, which may be the least transparent government on the planet but also the world's second largest economy? This specific issue has dogged the CBAM discussion for years and it's not going away anytime soon. The reality is that it's very hard to move this discussion from the concept phase to workable legislation that you can actually vote on. 

So what we are really seeing in the GOP's flirtation with carbon tariffs is the evolution of trade policy within the party; from a party of staunch free-traders to a party proactively trying to impose a major protectionist trade barrier for countries on the basis of their climate performance. 

To be sure, we see it as an encouraging matter of movement on climate issues within the GOP. But it’s no less ironic that the GOP is engaging in carbon tariffs as a means to boost U.S. competitiveness. That's undoubtedly in part related to the aggressive protectionist tendencies of the Trump presidency. 

Where this new found focus on carbon tariffs, climate and trade policy will end, it’s hard to say. We’ll keep watching and sharing our views.